Practice Good Theory

Will social security be there for you? It is almost cliche to say "it will be gone by the time I retire".  Yet, almost everyone is relying on it. Are you relying on social-security to be there for you? If you're preparing for the worst, good for you; but, what's the most likely way in which this will unfold? How are "benefits" calculated?   This a very rough calculation:  First, estimate your average annual salary over your lifetime (up to the max. of about $100K, after which payroll taxes are not deducted).  You are promised $90 for each $100 of average earning, but only for the first $9000. Then, for the next "slab" you are promised 30%. Finally, for anything over $55K, it is 15%. ( Benefits are indexed to CPI. These numbers assume 2010-equivalent dollars.) Sample calculation: Suppose you just retired, having started working in the late 1960s. Your peak earning years were probably around 1990. Let's say you earned an average ...

Is the stock market booming? Few people agree that we're in the middle of a terrific boom. Objectively, an average holder of stock (see SPY chart below) is in a position quite similar to the peak of the dot.net boom or the housing boom. Yet, even people with their 401(k) fully in stock funds don't feel it emotionally -- we have the same number, but none of the excitement and enthusiasm. Leading up to the dot.com top, a lot of people were wondering if the ride would end. Yet, the feeling was different from now. Today, it feels like there really has not been that much of a ride. Is the economy booming? I think the main reason for the lack of enthusiasm is that the economy -- in real terms -- has lagged behind the stock-market. This chart overlays Real per-capita GDP on top of the SPY chart. Notice the year 2000. You see a pause, and then GDP started to rise far past the previous peak. Meanwhile, today per-capita real-GDP is not yet back to the last (housing-boom) peak....